Banks may recast loans worth Rs 8.4 lakh crore: India Ratings

Banks may restructure loans worth Rs 8.4 lakh crore, or around 7.7% of the total bank credit at end-March 2020 from the corporate and non-corporate segments under the current framework, India Ratings and Research said on Wednesday. The value could be higher if restructuring in non-corporate segments exceeds 1.9% of the total bank credit.

“Ind-Ra estimates that almost 60% of Rs 8.4 lakh crore was already susceptible to slip into the NPA (non performing assets) category post lockdown, in absence of restructuring,” the rating agency said in a note, adding that the largest share of restructured accounts could come from the infrastructure, power and construction sectors.

The restructuring quantum from the corporate sector in FY21 could range between 3% and 5.8% of banking credit – amounting to Rs 3.3-6.3 lakh crore. Even stressed assets that may not slip in the near term could be restructured as Covid would have aggravated the stress in these accounts, India Ratings said.

Based on an account-level analysis, the agency also estimated that nearly 53% of this pool is at a high probability of restructuring or slippage. The remaining 47% is at moderate risk of restructuring, and the progress on these accounts will depend on the progress of Covid.

“While a high proportion of the debt from the real estate, airlines, hotels and other consumer discretionary sectors is likely to be restructured, the largest contribution would be from infrastructure, power and construction,” India Ratings said.

As for non-corporate loans, the agency expects at least Rs 2.1 lakh crore, constituting 1.9% of bank credit, to undergo restructuring, which would have otherwise slipped.

India Ratings expects the provisioning requirement to fall by around 10% on the restructured pool in FY21 from earlier expectations on loans that could have turned bad. “As the tenor for the restructured loans can be extended for a maximum of two years, the credit cost impact in accounting terms could be benign in FY21 and FY22,” the agency said.

It has lowered its provisioning estimates for FY21 to 2.3% for the banking system from 2.8%. It expects the credit cost ratio for public-sector banks to be 2.6%. For private banks, it may be 1.8%.